What to Expect for Apple’s Margins Moving Forward

TL;DR

Apple's gross margins have seen a slight uptick in the past year but have trended down quarter-to-quarter, with pressure expected on average selling prices due to the cheaper iPhone 6 SE model and expanding into developing economies.

Transcript

Dylan Lewis: The second thing you mentioned in that episode a year ago, was focusing in on gross margins. A year ago, they clocked in just under 38%. Now they're around 39.4%. So, it's actually a nice little uptick. But if you look quarter-to-quarter, the story is a little bit different. They've actually trended down. A while back, you said the day... Read More

Key Insights

• 📉 Apple's gross margins have experienced both short-term improvements and downward trends in recent quarters.
• 🛄 The introduction of cheaper iPhone models, such as the iPhone 6 SE, may impact average selling prices but aims to expand Apple's presence in developing economies like India and China.
• 💱 Currency headwinds and changing product profiles have also influenced Apple's gross margins.
• ✋ Apple's high margin businesses, while not significant for the company as a whole, would be considered successful for any other company.
• 💱 Evaluating constant currency revenue basis provides a more accurate understanding of Apple's business performance compared to fluctuating currency rates.
• 📉 Apple's management expects a downward trend in gross margins for the upcoming quarter.
• 🌓 A patent dispute with Samsung resulted in a temporary boost to Apple's gross margin in the previous quarter but does not reflect the true measure of the company's product operations.

Questions & Answers

Q: What is the current trend in Apple's gross margins?

While Apple's gross margins have seen a slight uptick in the past year, they have shown a downward trend quarter-to-quarter.

Q: How will the introduction of the iPhone 6 SE impact average selling prices?

The iPhone 6 SE, being a cheaper model, may put pressure on average selling prices, especially in developing economies where consumers want a high-end iPhone but may not be willing to pay a premium for it.

Q: How do currency headwinds affect Apple's gross margins?

Currency headwinds, or fluctuations in foreign exchange rates, have impacted Apple's gross margins due to the company's presence in foreign markets. However, evaluating constant currency revenue basis provides a true measure of the business's performance.

Q: What is the guidance for Apple's gross margin in the upcoming quarter?

Apple's management has guided for a gross margin between 37.5% to 38% for the upcoming quarter, which will be down sequentially. The mid to high 30s is expected as the realistic range for gross margins.

Summary & Key Takeaways

• Gross margins for Apple have increased from just under 38% to around 39.4% in the past year but have shown a downward trend quarter-to-quarter.

• The introduction of the cheaper iPhone 6 SE model and expansion into developing economies like India and China may put pressure on average selling prices in the future.

• Currency headwinds and changing product profiles have also affected Apple's gross margins.